The T3 Technologies story

January 20, 2009

By Steven Friedman, President
T3 Technologies, Inc.

For over 15 years, my company was a successful IBM Business Partner. I used to have a thriving company with over 50 employees, nearly 1,000 customers in 28 countries (including 200 customers in 15 European Community states) and a profitable revenue stream earned through selling mainframe solutions to IBM customers. However, now our company is effectively out of business due to the direct actions of the company I used to be closely aligned with: IBM.

While my company is seeking legal remedies in both the US and Europe for the actions taken by IBM, most people will never hear our story. I think that needs to change and the IT world – both customers and vendors – need to understand just how easily IBM controls the fate of our company, many companies like us and as a result, harms customers who rely on IBM mainframe technology.

First, let me state right up front that we are not “IBM haters” at T3 Technologies. In fact, we have total respect for IBM’s mainframe technology and its ability to provide a reliable platform for business computing. This respect is what has kept us in this business focused solely on solutions for mainframe customers for all these years. Our issue is with IBM’s actions and business practices to maintain its current control of the mainframe market and eliminate all potential competition.

Despite reports in the press that the mainframe market is shrinking, nothing could be further from the truth. The IBM mainframe market is not only vibrant but growing and the mainframe remains essential to the operation of just about every industry including manufacturing, banking, insurance, healthcare and retail as well as public utilities and local, state, national, and world governments. The IBM mainframe is unlike other computing environments due to its unique system of interfaces for applications, non-standard hardware and software, non-portable system software, scalability and reliability characteristics and, as IBM calls it, a “style of computing [ http://publib.boulder.ibm.com/infocenter/zos/basics/topic/com.ibm.zos.zmainframe/zconc_whatismainframe.htm ]” that is only found on the IBM mainframe. As a result, IBM mainframe applications cannot easily be moved to other platforms such as ones based on UNIX, Linux or Windows, but only to other IBM-compatible mainframes such as the platforms that T3 offered. However, through a calculated set of actions, only IBM now offers IBM-compatible mainframes and based on IDC reports, controls over 99% of all existing IBM-compatible mainframes in use today. While companies such as Amdahl, Hitachi, Sequent, PSI, and T3 used to compete in the mainframe market, none of these companies sell IBM-compatible mainframes today.

Background on T3’s situation

For full information on T3’s history and product offerings, I invite you to visit our corporate web site at: http://www.t3t.com. What I would like to focus on here is our disagreement with IBM. Before I do that though, I think it is valuable to provide some context for our current situation.

In 1994, T3 started selling IBM mainframes as an IBM Business Partner focusing on the needs of customers who needed lower-powered mainframes. This was a profitable niche for us and we quickly became the “go to” company for businesses that needed these types of IBM mainframes. However, in 1999, IBM stopped selling low end mainframes at about the same time that Amdahl and Hitachi both suddenly exited the IBM-compatible mainframe market. This resulted in a void in the mainframe market and meant that many customers were forced to buy more mainframe power than they really needed, at higher prices than they normally budget for, and also meant they had only one choice of supplier – IBM. Seeing this as a challenge for the market we specialized in, we decided to explore new solutions for low-end mainframe customers. The best alternative solution at the time was a product called FLEX-ES developed by Fundamental Software Inc. (FSI). FLEX-ES was a software-based emulator that enabled Intel-based UNIX/LINUX servers to process 31-bit mainframe instruction sets. FSI had licensed certain 31-bit mainframe patents and IP from IBM to insure complete compatibility with “traditional” IBM mainframes, making this a very viable alternative offering for our customer base. FLEX-ES was mature and had even been marketed by Sequent Computer Systems [ http://findarticles.com/p/articles/mi_m0EIN/is_1998_Sept_24/ai_53023520 ] both before and after the acquisition of Sequent by IBM.

T3’s tServer mainframe based on FLEX-ES was a great success. We sold over 600 of these IBM-compatible systems since it was introduced in 2000, making the tServer the best-selling mainframe under 80 MIPS and the industry’s most cost-effective low-MIPS mainframe. But we also maintained a strong relationship with IBM and as a valued IBM Premier Business Partner, T3 also faithfully sold IBM mainframes to customers requiring more power. These were good times for T3 – until I was asked to meet with some IBM representatives in the spring of 2002. These IBM representatives told me that IBM did not like T3 selling IBM-compatible mainframes using FSI’s technology, even though IBM did not offer any products with similar computing power. These IBM representatives demanded that we terminate our relationship with FSI and stop selling IBM-compatible mainframes using FSI’s technology. If T3 did not stop selling IBM-compatible mainframes using FSI’s technology, IBM said it would prohibit T3 from selling IBM’s mainframes. We ultimately refused to terminate our profitable relationship with FSI and, as a result, IBM terminated our mainframe reseller agreement at the end of 2002.

Despite this disappointing setback, our tServer sales continued to thrive. As we continued to grow the company however, IBM gradually tightened its noose around the mainframe marketplace. First, IBM withdrew support for 31-bit platforms. This forced customers who required support to upgrade to IBM’s 64-bit hardware and operating systems – even though demand was still strong for 31-bit mainframes. Then, IBM decided to refuse to license patents to FSI for its 64-bit mainframe technology and when FSI’s patent licenses for IBM 31-bit technology expired in 2006, IBM refused to renew those licenses, essentially preventing further FLEX-ES sales. These actions effectively blocked T3 from continuing to exist in the IBM-compatible mainframe market. Perhaps IBM’s most flagrant attack on T3, however was yet to come. In the days preceding the termination of FSI’s 31-bit patent license, T3 purchased over 100 FLEX-ES licenses from FSI. We did this to satisfy then-existing pipeline demand for tServers. These were FLEX-ES licenses for which FSI had already paid IBM the required patent royalties. IBM accepted the FSI royalty payments (i.e. cashed the checks), knowing full well that in order to gain any value from these licenses, the end users (mainframe data centers) must also license IBM operating system software. Literally days after the expiration of the FSI patent agreement, IBM began telling T3 customers and prospects that it would no longer license IBM mainframe operating systems and program products to FSI-based systems. So although IBM accepted the correct patent royalty payments for these licenses, they rendered them useless and valueless by refusing to also license the required operating systems!

As incredible as this may sound so far, it’s literally only half of my story. In 2004, we examined some emerging technologies in an effort to increase our opportunity universe and expand our MIPS and functionality offerings. We signed an agreement with Platform Solutions Inc. (PSI) and began developing new mainframes based on its Amdahl-inherited firmware. Our Liberty Servers, based on PSI’s technology, gave us, and our customers, a new family of products capable of nearly 300 MIPS and with the functions and features that such users required. T3’s Itanium-based systems could run IBM’s zVSE and zOS in both 31 and 64-bit mode at considerably lower cost than an IBM mainframe. Further we could run IBM’s older OS/390 and VSE/ESA operating systems, which was something that IBM’s zSeries servers could not do. In other words, we were well poised to seriously compete with IBM in the low and mid range mainframe space. In November 2006, we shipped the first of 5 Liberty systems we had sold. However, in order to run any IBM-compatible mainframe, the user needs to license and run IBM’s mainframe system software. Despite attempts to negotiate in good faith to license IBM’s software and patents – a process that spanned several years – IBM chose not to license any of its mainframe software to PSI-based users. Not only that, the week after our first system shipped, IBM sued PSI for alleged patent infringement. So without IBM’s mainframe software, the Liberty server became a non-starter even though, technically, it was an excellent alternative platform for running many classes of mainframe workloads. And remember, IBM’s sudden refusal to license operating system software to T3 customers was preceded by a decades-long practice of licensing those operating systems to users of Amdahl, Hitachi, and other IBM mainframe-compatible manufacturers.

IBM, for no reason other than to remove all competition from the mainframe market, eliminated programs to allow customers to buy IBM mainframe software for use on non-IBM mainframe solutions and took legal action to shut down PSI. When PSI countersued IBM and filed complaints in Europe and the US, IBM decided in July 2008 it was easier to just buy PSI and take them out of the market [ http://www.interopnews.com/analysis/ibm-vs-psi-goliath-slays-david.html ] rather than fight them in court and risk waking up the anti-trust authorities in Europe and the US. With both PSI and FSI taken out, we are effectively no longer able to pursue new business with either of our IBM- mainframe-compatible product families. Again, I would like to stress that this is not because our products don’t work. This is strictly because IBM – through its actions and licensing decisions – will not allow us to exist.

IBM’s anti-competitive behavior

So why are IBM’s anti-competitive actions so destructive for both the IT industry and mainframe customers? IBM currently has a 100% monopoly in the IBM-compatible mainframe market. 100%! If you want to buy a new mainframe then you have one and only one choice. IBM. If this were an insignificant and shrinking market, then you could argue that it doesn’t matter. But both of these situations are not the case. Even IBM will tell you that it is “estimated that some $5 trillion worth of applications — i.e. business assets — reside on today’s IBM mainframe systems [ http://www-03.ibm.com/systems/z/advantages/soa/values.html ] ”and “without the IBM mainframe, the global financial system would collapse [ http://www.ibmsystemsmag.com/mainframe/enewsletterexclusive/9818p2.aspx ]” – this sounds pretty significant. In addition, the IBM mainframe market is hardly shrinking. IBM just announced that their multi-billion dollar mainframe business grew by 25% over last year [ http://www-03.ibm.com/press/us/en/pressrelease/25530.wss ] – this definitely sounds significant. Amazing what you can do when you have a 100% monopoly – even in these economically challenging times. Imagine how much money large- and medium-sized businesses and governments could save if normal competition were restored to the mainframe market and a there were a choice of vendors. According to one industry expert, it is estimated that Europeans could save US$48 billion over 20 years [ http://openmainframe.org/featured-articles/zos-competition-could-save-europe-48-billion-over-20-years.html ] if the mainframe market were opened up to fair competition.

The biggest single action that IBM has taken to sustain their 100% hold on the mainframe market is the practice of “tying.” IBM only allows its system software to be used on IBM mainframe hardware. This is counter to what IBM used to do and is counter to what it agreed not to do when it signed its 1984 Undertaking with the European Union. In the past, IBM licensed its mainframe systems software to Amdahl, Hitachi, FSI and end user customers for use on non-IBM hardware. Now IBM prohibits the use of its software on any platform other than its own. This is monopoly tying and, while I am not a lawyer, my understanding is that this is illegal under the terms of Article 82 in Europe and anti-trust laws in the United States.

In addition, IBM has taken additional actions to remove competition. They regularly practice something called “exclusive dealing.” That is, “you can sell my products only if you agree not to sell competitive products.” This is what IBM said to me in 2002. This coercive conduct is supposedly illegal in both the United States and Europe. In fact, Article 82 in Europe specifically requires all dominant companies to allow fair competition and refrain from excluding competitors by threatening or retaliating against companies that deal with competitors. One can only imagine how IBM’s combined anti-competitive actions may have helped lead to the demise of the once-powerful European enterprise computer industry.

The conduct described above demonstrates a clear pattern of behavior: IBM leverages its dominant mainframe operating systems to force potential competitors to IBM’s mainframe computer hardware business to abandon the market. IBM’s conduct further sends a clear message to the entire IT industry not to support any efforts that may threaten IBM’s dominance in mainframe computing.

IBM’s abusive behavior prevents mainframe customers from choosing among different, less-expensive mainframe computer manufacturers to run their IBM mainframe workloads. With businesses and governments forced to pay IBM’s above-market prices for mainframe computing, consumers end up paying the bill for those costs through higher fees and price increases for goods and services. In T3’s market, there exists pent-up demand from smaller and mid-size customers looking for a highly flexible mainframe that can grow easily and affordably with them as their computing needs increase. T3’s products — which have been shut down by IBM’s unlawful conduct — were designed to meet that customer demand. Now there is no one in the market addressing the needs of those customers. Once again, those customers are being directly harmed by IBM’s actions.

Mainframe customers are also harmed by IBM’s stifling of innovation. PSI’s technology was truly impressive. Yet, IBM has killed this technology and is denying access to this unique innovative approach solely because it threatens the stranglehold it has on the mainframe market. With competition in the market, IBM would be forced to reduce its above-market prices for its mainframes.

What needs to be done

Enough about us. Let’s talk about what needs to be done. For the benefit of mainframe providers, mainframe customers and consumers around the world, we believe the following needs to happen and is the basis of the complaint we have filed in Europe and our suit in the US:

- The mainframe market should return to being an open market.

- IBM should license its mainframe software, IP and patents for use on other platforms under reasonable and non-discriminatory (RAND) terms.

- T3 and others should be allowed to sell IBM mainframe-compatible offerings without interference from IBM.

- The PSI offerings should be made available to channel partners such as T3 and to end user customers.

- And, if IBM does not take steps to allow this to happen, then regulators need to take action.

It is interesting to look at what European Commissioner for Competition Policy, Nellie Kroes, noted in a recent speech [ http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/317&format=HTML&aged=0&language=EN&guiLanguage=en ] about how governments have an obligation to protect their citizens from the actions of dominant suppliers:

“When a market develops in such a way that a particular proprietary technology becomes a de facto standard, then the owner of that technology may have such power over the market that it can lock-in its customers and exclude its competitors.

Where a technology owner exploits that power, then a competition authority or a regulator may need to intervene. It is far from an ideal situation, but that it is less than ideal does not absolve a competition authority of its obligations to protect the competitive process and consumers.

In essence the competition authority has to recreate the conditions of competition that would have emerged from a properly carried out standardisation process.”

I sincerely hope that she was talking about IBM and that the European Commission will seriously consider our complaint – for the sake of consumers, the shareholders of T3, our customers, IBM’s customers and everyone else in the mainframe industry.

That’s my story. If you have been negatively impacted by IBM, or if you have a point of a view on this situation, I’d like to hear from you. Please comment on this article below, or post a comment in our discussion forum [ http://openmainframe.org/discussion ], or send me email at steven.friedman@openmainframe.org.

T3 TECHNOLOGIES TIMELINE

Copyright 2009